On 28 June 2022, over 700 attendees tuned in to ICMA’s eighth annual conference on its Green, Social, Sustainability and Sustainability-Linked Bond Principles (the Principles), its collection of voluntary frameworks which are referenced by 98% of sustainable bond issuers internationally.
The conference marked an opportunity to publish new materials and resources to support the Principles. Notably, in relation to sustainability-linked bonds (SLBs), ICMA has updated its registry of approximately 300 key performance indicators (KPIs), which gives high-level recommendations and illustrative examples for the selection of KPIs, classified by sector and between core and secondary indicators.
The accompanying Q&A seeks to address the feedback of investor communities seeking minimum, consistent standards for KPIs by discussing the approach to topics including:
- the materiality assessment and nature of KPIs;
- the setting and calibration of KPIs, with recommendations including that targets should be set at a minimum to be in line with official international or regional targets and aim to be more ambitious;
- the timing of KPI observation dates as against call dates, including recommendations for where a bond becomes callable prior to the issuer’s performance being evaluated; and
- amendments to KPIs, which it recommends should be explicitly contemplated in the documentation of the bond, failing which, may be considered using consent solicitation.
On the application of the Principles to securitisation, ICMA has updated Appendix 1 of the GBPs with new definitions for green securitisation, clarifying terminology and market practice, notably for collateral. The accompanying Q&A includes sustainability criteria relating to collateral, no double counting principles and reporting requirements, with similar guidance available for social bond securitisation.
A new Climate Transition Finance methodologies registry has also been created with a list of tools tailored to helping issuers, investors and financial intermediaries validate their emission reduction pathways as “science-based”. Similarly, ICMA has updated the Guidelines for External Reviews to facilitate the assessment of alignment with the existing Climate Transition Finance Handbook.
Alongside these publications, additional guidance, updates and templates have been released:
- new metrics for impact reporting for: (1) Green Projects relating to environmentally sustainable management of living natural resources and land use; and (2) for Social Projects (including an enriched list of social indicators and impact confirmation on target population);
- updated high-level mapping to the United Nations’ Sustainable Development Goals (SDGs);
- a recommendations paper and proposed information template for providers of Green, Social and Sustainability Bond index services; and
- a Pre-issuance Checklist for Green Bonds/Green Bond Programmes and an updated Sustainable Bond/Bond Programme Information Template (including disclosure of the issuer’s sustainability strategy).
A prevailing theme throughout the conference and reflected in the new publications is the objective of the Principles to promote market transparency and to continuously educate different segments of the market on green and sustainable financing.
During the conference, speakers gave an insight into what we should look out for next. Primarily, we should expect the outcomes from its current workstreams which include the sustainability elements of repo and commercial paper products and on SLBs in high-yield and emerging markets. It was also highlighted that, while application of the Principles to securitisation currently focuses on the Use of Proceeds approach, the next stage of the working group’s agenda will address the SLB approach within securitisation.